The banker w**kers have ALREADY won the ear of Kenny!

That didn’t take long.

[*Kenny calls for new EU cash to end bank crisis - National News, Frontpage - Independent.ie * (https://www.independent.ie/national-news/kenny-calls-for-new-eu-cash-to-end-bank-crisis-bulletportugal-takes-centre-stage-2594288.html)

  • What the banks need to do is to unwind their positions towards bringing the country’s productive forces back to a healthy and sustainable position. And this unwinding should be done with the least amount of damage to your average citizen.

As Ricardo put it, “Banking operations are primarily an important device to bring about a better arrangement of productive forces.”

In these terms our productivity is best served by a paradigm marked along lines illustrated by the following norms:

a. Allowable leverage should be kept at around 2 to 3 maximum. - Really productive investment requires investor’s own money to be invested. If he is allowed to invest only a small portion of his own, and lots of other peoples’ money, like as happened during the boom, then the investor’s judgement will go out the window due to lack of skin in the game and the prospect that he can attain wild returns on his own money.

b. That rental revenue streams and rent seeking in general are properly acknowledged as a drain on the productive economy and an inhibition on competitiveness. No lending should take place to facilitate rent seeking. If someone has their OWN capital and seeks a safe return in the form of rent, then fair enough. In addition, this sector should be regulated properly by government to prevent it becoming too much of a drain on the economy.

c. Any lending to business not secured on tangible readily liquidable assets should be for cash flow purposes only. It is not the job of banks to lend for expansion. It is for private individuals in possession of capital to decide whether a businesses proposition for expansion is worth risking their money on. Certainly, once private investors have commited the money to aid expansion, the bank can aid with the new cashflow requirements.

d. Mortgage lending should be limited to the amount that the bricks and mortar and fixtures and fittings can be sold for on the open market, and/or about 70% of the transaction amount. It is not for the bank to engage in staking (their depositor’s) money on such an intangible asset as LAND.

Etc.

But, what is to be done instead?

Where have we heard that before?! - Was this not the line we heard trotted out to justify the bank guarantee? And what actually happened? What changed within the banks and in their way of doing business?

Myself, I see the likes of Mike Soden behind these noises Kenny is making. I said recently in a post:

Well, it looks like they did listen.

Anyway, I think the EU will laugh Kenny out of the place. At least I think they understand the concept (and importance) of unwinding in our predicament. I hope they do.

EDIT to take out language and personal slight

The script has already been written though by the IMF/EU overlords.

The only interesting thing is what lines Enda gets to say.

Will he claim this is for our own good or honestly admit he has no power?

Very dramatic thread title there roc, however, the devil is in the detail :

and

Some balance please.

I don’t see that Kenny’s quotes necessarily imply either that he is looking for Credit Binge 2.0 nor that he is accepting Irish taxpayers must pay for it. I don’t think either of those things are going to happen.

I think the EZ will end up underwriting the bank bailouts, and I think our banking sector will shrink massively. When Kenny says “massive amount of cash for years to give the banks vital breathing space to sort out their problems” that seems to me to be a comment about confidence, not about the banks having endless credit to throw at gaffs and bling.

I really do think people need to chill about all this. Why oh why oh why would the Germans give us shed loads of cash to prop up our bubbles? There was a German economist on Prime Time last night and he said Germany would not give us a penny while our wages and benefits are so high. They know damn well that we need to deflate massively and any money they give us will be contingent on that. To think they’ll just give it to Paddy Wanker Bankers to do as they please isn’t realistic.

I’m not sure he is singing from their script just yet.

Come on - do you think they wanted him to start saying that “the ECB are going to pump billions and billions into our banks for as long as we want?” As per the article above?

No - since he has come back from the US and Europe, the Irish bankers have got to him, and he is currently singing from their script. No doubt, when he goes back to Europe, he will then start singing a bit from Europe’s script.

My reading of the detail in that article leads me to the conclusion that Kenny and the government’s position is that the problem with the banks is down to liquidity. And therein lies the solution to the problem. I think this is a very mistaken position. And I think it is a position that emanates from Irish banking and establishment incumbents, who remain the same people as they were in the boom (thus their position).

I agree. But these facts seem to me at odds with the noises Kenny is making as per that article. Surely, he will have to change his tune when he goes back to Europe.

We disagree and I don’t think we will agree, but let’s not get into a circular argument. Give the man a bit of time before alarmist “Banker wankers have ALREADY won the ear of Kenny” stuff. I see no evidence that this is true and your reading of it does not constitute evidence. Neither of us will have any influence whatsoever on the outcome, that much is certain.

It’s not the Irish bankers script though - it’s the IMF/EU script.

The Irish Bankers have no leverage. The IMF/EU have all the leverage.

They’ll simply say - “Don’t want to do what we ask? No problem, Enda - we’ll just turn the money tap off.”

Banks do not create wealth in any form. Their ability to ‘generate profits’ is not benign. Any profits they make are (a) drawn away from the real economy, and (b) do nothing to contribute to the better organisation of productive forces and allocation of capital. In fact, in trying for the easy profit, they have a marked negative effect on productive forces and allocation of capital. The boom and the banking profits generated during it well illustrates this fact. So, I conclude that the position that the banks ‘must be able to generate profit’ is a position that emanates from those who directly benefit from said profit.

Enda has leverage too. In that he can threaten default. Or threaten senior bond holders. Possibly, he developed something in the US to fall back on to make good his threat, who knows?

Listen, I know that the EU have power over us. However, all I am saying is that Enda is going into negotiations with them. And he is trying to work a position. But I am hearing in that position a lot of what Irish bankers are hoping for to save their own hides. And not what is really best for the country, in my personal view.

Well, there is an astonishing liquidity problem too. With 150 bn out from the ECB and the ICB, there is a massive shortage of liquidity. If this money was called in or required immediate sales of assets, we’d have a similar situation to NAMA - immediate requirement to recapitalise the banks.

So I think what Inda is saying is correct. It is not the full story, but it is correct for the liquidity part. Even if you bust the banks immediately or over time, there is still a liquidity issue for the rump of the banks.

Agreed. But to work on the problem of liquidity you need to* start liquidating*. - ie. Bankrupting people who owe money and recovering as much as possible by selling everything they’ve got. And auditing and investigating to see if they hid away their money back in 2008, and see if some political initiative can be taken to recover as much as possible.

But what is being attempted instead is to use masses of liquidity to try and bolster asset values and rents. And ensure things can continue as they were. It may work, indeed. But the outcome it will lead to is that a huge proportion of our economy will then be devoted to servicing (a) EU/IMF debt, (b) Rents and mortgage repayments.

But luckily, the well heeled don’t get liquidated. Actually, their debts do get liquidated in a way - but in the form of the future earnings of our people being diverted into paying off EU/IMF debt and high mortgages and rents.

The equation always balances. The question is only how you balance it.

Absolutely.

I think coming changes to bankruptcy laws will have far-reaching consequences. It is unlikely, still, to be attractive to the ‘well heeled’ (highly leveraged) as unwinding their leverage will result in them no longer being able to maintain the appearance of well heeled. I suspect a simple, but quite brutal, system to be introduced - it will be beneficial to ‘ordinary’ people as their leveraged lifestyles don’t exceed their incomes by that much. The ‘rich’ however, are completely binged out, using ‘company’ assets as their own.

I’ll probably be sorely disappointed in this, but that’s the only realistic way I can see it happening. A leverage unwind hurts those dependent on the leverage. ‘Ordinary’ people were leveraged to buy housing and for the bling lifestyle, but generally they can live a fairly ‘normal’ life without the bling and housing costs will come down to meet lower leverage levels. So it will be a relatively easy adjustment (however traumatic and starting from zero it is). For the ‘well heeled’, matching their lifestyles to their incomes is going to be much more difficult.

True.

It is those kind of questions and realities that must be faced up to and answers given to them.

And there is another aspect of liquidity - it is true to say that when you have lots of cash to slosh around, *the social and political factors *(that no doubt were what lead to our catastrophic misallocation of capital and consequent increasing indebtedness), become obscured by the wash of money.

But when the tide goes out - all is laid bare, and the question then becomes stark, “where did all the money go?” And then peoples’ eyes get turned to the political decisions and norms that lead to its disappearance… and the profligate speculators turning FTB 35 yr mortgage contracts into instant cash that they used to fund extravagant lifestyles… and so on.

But critically, when the tide of money goes out, what gets shown up, and attention directed towards, are our politicians, our political systems, our institutions, our ‘business men’, the kind of business they were engaged in, etc.

So, the proposal of spraying these entities with as much cash as possible again, so that they can retreat back again into obscurity and continue on as before, doesn’t sit well with me. It is critical to the health of our institutions that there is a big shake down in them. And lots of liquidity just puts off this day of reckoning.

Yeah, but I don’t see there being any chance of the liquidity being sprayed around. It is more the drowning man suddenly finds himself in a desert. From the wrong type of water to none at all. They won’t see the liquidity cash, or if they do, we’d better start bombing them (because they’ll be stealing it directly from the state, that is, you and me). It may slow the pace at which they repay, the amount that they repay may be smaller, but ultimately I reckon they’ll pay back what they owe with interest (just not as much interest as they originally signed up to pay). As I say, the change to their lifestyle will be more noticeable to them…

Maybe he’s of a Dan or Austin standard. Our wages are lower than Germany and our benefits pale into insignificance.

The wages are here epp.eurostat.ec.europa.eu/statis … 0207162153

The benefits are different - essentially Germans pay a shedload more in social redistribution than we do but the lower paid pay more tax to pay for this. I worked it out somewhere here. Trust me :smiley:

These figures are based on both the private and public sectors. The government has no direct say on private sector wages (apart from the minimum wage). However the goverment does control the level of public sector pay which is higher in Ireland than in other EU states with similar costs of living. I heard recently (Pat Kenny, March 23rd I think) that average PS weekly pay in Ireland is €911 whereas in the UK it is €634. Whatever the rights and wrongs of Ireland’s PS pay arrangements, the EU/IMF may well insist that such a disparity is addressed.